Millions of Americans have parents or adult children living with them, especially in the wake of the economic devastation wrought by the COVID-19 pandemic over the last year. For Americans taking care of their elderly parents, they generally do so without expectation of payment or reimbursement, making it a very significant financial responsibility.
The good news is that there are some tax deductions available for people who take care of their elderly parents or other relatives in Union City, NJ. Here’s a quick overview of what you should know about taxes and the elderly.
You may qualify for a personal exemption
One of the most common deductions available for people taking care of their elderly parents is the personal exemption, which can only apply if you claim an elderly parent as a dependent. For you to be able to do this, the following three conditions must apply:
- The person you claim as an adult dependent must be related to you biologically or through marriage
- Your parent must not have a gross income exceeding $4,150 per year, not including Social Security payments and other types of tax-exempt income
- You must provide more than half of the support for your parent throughout the year, or have an arrangement in which you and your siblings collectively pay more than half of your parent’s total support and you pay at least 10 percent (so long as no other sibling claims them)
Dependent care credits are available
Another tax benefit available for people taking care of adult dependents is the dependent care credit. This credit applies if you paid another person to care for your adult relative while you were either working or looking for work. You need to earn at least some income during the year to qualify for this credit, but if you qualify you can claim up to $3,000 for in-home care expenses, and up to $6,000 if you’re paying care expenses for two qualifying adults. There are income thresholds that apply here.
Deductions exist for medical expenses
One of the largest expenses people often have when caring for elderly relatives is medical bills. You may be able to deduct medical expenses paid on behalf of your parent, regardless of your ability to claim them as a dependent. The IRS allows Americans to include the amount paid for a parent’s medical care when itemizing, if you can’t claim them based on filing status or income. Examples of medical expenses you’re allowed to deduct include hospital stays, long-term care, dental care, prescription drugs and insurance premiums, as well as expenses that are more than 7.5 percent of your adjusted gross income (AGI).
Interested in learning more about the potential tax breaks that may be available to you if you take care of adult dependents, including elderly parents? The team at Kedean’s Generation is happy to provide you a full rundown of everything you need to know about aging parents and taxes. For more information, contact our accounting firm in Union City, NJ with any questions you have.
Categorised in: Tax Preparation